Essential business equipment can run thousands to hundreds of thousands of dollars, requiring a significant investment and a major decision. Equipment financing offers a practical solution to obtain the equipment a business needs without the hefty upfront cash layout. Whether you’re a long-time business owner or just starting out, chances are you have questions about how equipment financing works and what it involves.

The five questions below are among the most common ones business owners ask the Global Financial & Leasing Services team about equipment financing, ranging from general concerns about affordability, eligibility and the implications of taking on debt to acquire new assets.

These questions address the typical informational needs of business owners who are considering financing options for their equipment needs:

What is equipment financing?

Who can apply for equipment financing?

What are the benefits of equipment financing?

How does the application process work?

What should I consider before applying for equipment financing?

  1. What is Equipment Financing?

Equipment financing refers to a loan used specifically to purchase or lease essential business-related equipment. This type of financing enables businesses to buy the necessary equipment immediately, while paying back the principal and interest over a set period. In the case of financing an equipment lease, the equipment can be purchased or returned at the lease’s end. Typically, the equipment itself serves as collateral for the loan, which can help to secure lower interest rates.

  1. Who Can Apply for Equipment Financing?

Eligibility for equipment financing can vary by lender, but generally, businesses can apply from a broad range of industries including:

  • Automotive
  • Construction
  • Forestry/Logging
  • Healthcare/Medical
  • Machinery/Manufacturing
  • Recycling/Waste industry
  • Restaurant
  • Titled Vehicles
  • Transportation Equipment
  • Cannabis

Traditional lenders and big banks will look at aspects like your credit score, business financials and the longevity of your business. New businesses and startups may have a harder time securing financing due to a lack of financial history, but other factors like personal credit and industry experience can play a role. If you don’t have a favorable credit score, look at alternative lenders, like Global Financial & Leasing Solutions (GFLS) that dig deeper than the numbers to help you finance equipment.

  1. What Are the Benefits of Equipment Financing?

There are several benefits of equipment financing:

  • Preserve Cash Flow: Instead of paying the full price upfront, you spread out the cost, which can help maintain your business’s cash flow for other operational expenses.

  • Tax Advantages: Often, you can deduct the cost of leasing or loan payments as a business expense on your taxes.
  • Immediate Access to Equipment: Equipment financing allows you to acquire essential machinery right away, which can be crucial for bidding/starting new projects or expanding services or market share.
  • Flexible Payment Options: Many finance agreements offer flexible repayment terms to match your business’s cash flow patterns.
  1. How Does the Application Process Work?

The application process for equipment financing typically involves the following steps:

  • Application: You’ll need to provide details about your business and the equipment you wish to purchase.

  • Credit and Financial Review: The lender will assess your business and personal credit scores, along with your business’s financial statements and get in touch with questions.
  • Approval and Terms: If approved, you will be offered terms, including the loan amount, interest rate and repayment schedule.
  • Documentation: Finally, you’ll complete the necessary paperwork and, upon signing, receive the funds to purchase your equipment.

You can review GFLS’s equipment financing application.

  1. What Should I Consider Before Applying?

Before applying for equipment financing, consider these key factors:

  • Total Cost of Ownership: Look beyond the sticker price of the equipment to include maintenance, supplies and potential downtime.

  • Loan Terms: Make sure the repayment terms align with your business’s financial planning. Understand the interest rates and any potential fees involved.
  • Equipment Lifespan: Consider whether the equipment might become obsolete before you’ve finished paying for it. In which case, financing an equipment lease might make more sense for your business.

Related Reading: Key Trends in Equipment Financing for 2024

Equipment financing can be a strategic approach to upgrading your business’s capabilities without straining your finances. By understanding the fundamentals and preparing accordingly, you can make informed decisions for your business goals and financial situation. The GFLS team is here to help and answer any other questions you have about equipment financing. Get in touch with us.